Written by Steve Sidkin
1 May 01

English lawyers are taught to strive for certainty. This concept operates hand in glove with the common law system which is precedent based. When it rubs up against a civil law system, however, the opportunities for friction and unhappiness are considerable.

In essence this is what has happened with the Commercial Agents (Council Directive) Regulations 1993 (as amended). It has been most graphically illustrated by the recent High Court decision of His Honour Judge Bowers in Barrett McKenzie & Company Limited v Escada (U.K) Limited (1 February 2001, unreported). The claimant had acted as the agent of the defendant fashion company since December 1988. The agency was summarily terminated by the defendant in July 1998.

The claimant’s main claim was for compensation based on the benchmark established by the Court of Session in King v T Tunnock Limited [2000] S.C.424. This provided that French legal principles were to be applied in determining the amount of compensation to which a commercial agent was entitled under the Regulations.

Unfortunately for the claimant the decision in King did not appeal to Judge Bowers.

He attacked the Court of Session’s decision by pointing to the failure of the Regulations to provide a formula for the calculation of compensation under Regulations 17(6) and (7). In doing so he compared the provision of some detail in Regulation 17(4) which determines how an indemnity is to be calculated. At the same time he questioned the purpose of Regulation 17(7). This provides that:
“For the purpose of these Regulations such damage [under Regulation 17(6)] shall be deemed to occur particularly when the termination takes place in either or both of the following circumstances, namely circumstances which:

(a) deprive the commercial agent of the commission which proper performance of the agency contract would have procured for him whilst providing his principal with substantial benefits linked to the activities of the commercial agent; or

(b) have not enabled the commercial agent to amortize the costs and expenses that he had incurred in the performance of the agency contract on the advice of his principal.”

He also took the view that the Court of Session was unable to explain the purpose of Regulation 17(7) in respect of the two year tariff approach.

Certainly the interaction of Regulations 17(6) and (7) is not easy to rationalise. This was recognised by Judge Bowers himself. More particularly it was also recognised by the Court of Session which pointed to the fact that the two Regulations appear in one article in the Directive. Further it is clear from the Court of Session that the situations described in Regulation 17(7) are ones which may lead to an adjustment of the French tariff system in favour of the agent if the agent has suffered particular loss. But these situations are non-exhaustive. There, may be others. In their absence, however, the decision in King results in a benchmark of two years compensation being awarded to agents under Regulation 17(6).

Judge Bowers then drew attention to a difference between indemnity and compensation in that the former is subject to a one year cap and will only operate if the parties have so agreed. But in raising this point, Judge Bowers ignored the fact that the idea of a cap was set out in the provisions of the Handelsgesetzbuch on which the indemnity concept is based. The fact that the concept of compensation under French law did not provide a cap is of no great import. Further the fact that one concept may favour a principal and the other the agent provides the flexibility envisaged in the Department of Trade and Industry’s guidance notes on the Regulations which were published in September 1994.

It is clear from the judgement that Judge Bowers was deeply troubled by not knowing how the French courts would deal with the particular case. But in so doing he failed to recognise that as French law is a civil law system, the French courts are not bound to apply precedents. As such, it is open to them to interpret the legislation from one case to the next. The law provides a tariff system – the benchmark mentioned by the Court of Session. It is therefore for the French courts to apply and determine whether the compensation is to be at, above, or below the benchmark.

Surprisingly, despite having called for guidance in his judgment, during the trial Judge Bowers prevented counsel for the defendant from going into any of the French cases which opened up the areas of the French courts’ ability to depart from the benchmark. Unfortunately his judgement contained no express statement of why he did so. It may be that he did not want his judgement to be influenced by French decisions given that it was his view that English judges were capable of interpreting and enforcing the compensation principles of the Regulations.

In following this line, Judge Bowers appears to have failed to understand the purpose of the European Self-Employed Agents Directive (86/653/EC). According to Judge Bowers, whilst the Directive provides a right, it is for the national court to determine for each Member State what this right is worth. But this appears to conflict with Article 249 of the EC Treaty. Under the Treaty a Directive is binding as to the result to be achieved upon each Member State to which it is addressed but leaves to the national authorities the choice of form and methods.

The purpose of the Directive is to protect freedom of entitlement and the operation of undistorted competition for all agents. This was clearly outlined by the European Court of Justice in its judgement last year in Ingmar GB Limited v Eaton Leonard Technologies Inc (C-381/98). The Directive’s purpose will not be achieved if national courts can determine that the right to compensation (or indemnity) varies from one Member State to another.

In contrast Judge Bowers claimed that the purposive element and harmonisation of the Directive was achieved simply by providing for an entitlement to compensation or indemnity.

In justifying his decision, Judge Bowers relied to a considerable extent on the judgement of His Honour Judge Hallgarten QC in Duffen v FRA BO SpA [2000] I Lloyd’s Rep 180. Unfortunately the same issues that arise in respect of Judge Bowers’ decision are also applicable to the judgement of Judge Hallgarten, albeit that Judge Hallgarten was of the view that an English court was ill equipped to mimic a French court.

Both decisions failed to recognise the distinction between common law and civil law.

Judge Bowers also attacked the application of the tariff as being unfair. In his view it would result in an injustice. He illustrated his view with an example. However, the example showed an uncertain understanding of how agency agreements operate in the United Kingdom. It also demonstrated a failure to understand why the indemnity concept was included in the Directive, and, therefore, the Regulations. This leaves aside the fact that French law – and the Court of Session – apply a benchmark.

What is to be used to determine the amount of compensation under Regulation 17(6)? Judge Bowers referred strongly to the value of the agency and connections established by the agent at the time at or immediately before termination. On this basis a number of factors were to be taken into account. But it would appear that there is no question of their being applied systematically against a calculation of compensation arrived at by the Court of Session’s benchmark approach.

Instead Judge Bowers mentioned as factors to be taken into account the duration of an agency and its history. Equally relevant are the agency agreement’s precise terms and whether it was in writing or oral and whether there was “any security of the agreement”. But why the form of the agreement should be important is unclear as is the significance of security.

Judge Bowers also considered to be relevant whether the agency was dealing with a regular repeating client base or with one-off transactions with different persons. He envisaged a stronger argument for larger compensation for the former. Certainly such an argument can be made out. But curiously the value and volume of the transactions did not obtain a mention in the judgement.

In seeking to justify the application of these factors to the value of the agency at or immediately before termination, Judge Bowers was in danger of arriving at a calculation of an indemnity under Regulation 17(3) by another route. It is also uncertain whether Judge Bowers intended these factors to be exhaustive.

From the amount determined by these uncertain means, it was Judge Bowers’ view (following on from Judge Hallgarten in Duffen) that there is to be deducted the expenses incurred by the agent in earning the commission on which compensation is calculated.

This judgement led to the parties to agree terms of settlement which resulted in £16,500 being paid to the claimant with each party bearing it own costs. In contrast the claimant had sought a total sum in excess of £96,000.

In giving this judgement Judge Bowers has determined a quasi-common law approach to calculating compensation. Principals who are parties to agency agreements where English law is the applicable law can be expected to be heartened by his labours. This is despite the uncertainty that he has created. Agents, on the other hand, can be expected to ruminate on the fact that, in the space of less than a year, the calculation of compensation has turned into a game of two halves.

Authors

Follow us online

Register for updates

You can register online or follow us on Twitter or LinkedIn to receive our latest news, events and publications.

Register

Search

Portfolio
Title CV Email

Remove All

Download


Click here to email this list.